You May Have More Employees Than You Think—At Least For FELA Purposes

By: Brandon Thompson

How many employees do you have working on your property right now?  That sounds like an easy question.  But, for railroads subject to the FELA, it may not be.  Under the FELA, employees of contractors that railroads hire may be deemed “employees” for purposes of the FELA.  The origins of this anomaly are in the Supreme Court’s seminal decision of Kelley v. Southern Pacific Company, 419 U.S. 319 (1974).  There, for the first time, the Supreme Court held that an employee of a railroad’s contractor could be an employee of the railroad under the FELA.

So how do you get stuck with liability for an employee that you don’t employ?  There are three ways: the employee can be working (a) as a “borrowed servant”; (b) for two masters simultaneously; or (c) as a subservant of a company that is, in turn, a servant of the railroad.  But, rather than getting bogged down in the labels a court may apply, you should focus on one thing: control.  There are nuances to every claim, but every argument returns to what control the railroad had.  Did you tell the contractor’s employee what to do every day?  Every hour?  Or, was the contractor simply allowed access to your property to do the job at hand?  If the railroad provided the employee with tools to use, that also counsels in favor of finding the contractor is actually an employee.  The key distinction is between merely controlling what work the employee does and the fine details of how the work gets done.  Courts often refer to this as controlling the “physical conduct” of the employee.  On some level, you have to tell a contractor what do to.  Telling them how to do it is where things get tricky.

While not technically a control issue, having the contractor work alongside railroad employees also blurs the line between contractors and your true employees.  If an electrician comes to your property to repair wiring in a building, he or she may be near railroad employees, but the electrician is not actually working with them.  However, if you hire a contractor to replace ties, and its employees are working right with a tie gang made up of railroad employees, that may make a judge more skeptical.

Of course, the threat of a lawsuit by a contractor’s employee is never a reason to compromise on safety.  A contractor’s employees need to be safe, they need to be informed about the rules of your property, and they need to be corrected immediately if they are operating in an unsafe manner.  But the occasional safety instruction looks a lot better for a railroad if it is an outlier, and not just another example of control over the contractor’s employee.

Should you find yourself faced with one of these claims, check your agreement with your contractor.  It may (or, more accurately, should) contain an indemnification provision and a requirement that the contractor be insured.  Don’t be shy about making a claim against the contractor if you’ve been sued.  Depending on the type of work your contractor was doing, some state laws limit the extent to which the contractor can indemnify you.  But that will likely be a fact-based issue to be sorted out in the lawsuit.

This is where preemptive planning comes in.  When you hire a contractor, there are many things you can do to protect your railroad.  First, you should request that the contractor indemnify the railroad and hold it harmless from any claims resulting from the contractor’s work.  Check the law in your jurisdiction to know how to phrase this language, but it should include the obligation to defend you in any subsequent lawsuit.

But do not count on the indemnity provision to protect you.  The contractor may refuse to honor the agreement, or the contractor may not have sufficient assets to satisfy a judgment if a serious injury occurs.  In the latter situation, your indemnity claim may be nothing more than a spot towards the back of the line in a bankruptcy proceeding.  To minimize risk, your contract should also have a number of insurance-related requirements.  Get proof of insurance from your contractor and insist that the contractor make you an additional insured on any policies they have. Keep in mind that a standard commercial general liability (CGL) policy likely will not cover your losses in the event of an injury to a contractor’s employee.  Most CGL policies exclude work near railroad tracks and may exclude FELA claims or claims by employees.  You could try to address all of these exclusions by getting endorsements to the policy to eliminate the exclusions.  But the best practice is to require the contractor to take out a Railroad Protective Liability Policy and name the railroad as an additional insured.  This is the simplest way to fill the gaps in a typical CGL policy.  This is especially necessary if the contractor is working on or near your tracks.  Finally, check with your insurance broker or carrier.  They can help you through this process to assure you have adequate insurance from the contractor to cover the risks involved in whatever work your contractor is going to do.

As frustrating as it may be, the employees of your contractors may be deemed your employees for FELA purposes, so it’s best to plan ahead and try to minimize your liability.

For further information, contact Brandon Thompson at bthompson@fletcher-sippel.com.